Rising costs are weighing on small business incomes.
The study of three full years of small business financial data from 100,000 small businesses reports sharp declines during the last quarter of 2024.
This week, Biz2Credit published December 2024 Small Business Earnings Reportwhich analyzed three full years of financial data and found that average monthly earnings were $83,083 in 2024, down significantly from a year earlier.
Spending increases far outpaced revenue growth in 2024, especially in the second half of the year. Starting in January, small businesses experienced a long and steady increase in average monthly expenses, while revenues fluctuated. Although revenues rose steadily in the first half of the year, they fell from August to December.
The December 2024 report provided a comprehensive picture of the fortunes of small businesses, which struggled in the fourth quarter as rising costs outpaced revenues. Small business owners were on a roller coaster ride last year. Average monthly earnings fell dramatically from 2023 and were also lower than 2022.
Key Findings of the Small Business Earnings Report
- orAverage monthly earnings IN 2024: $83,083. (2023: $150,917. 2022: $87,550)
- Average monthly income IN 2024: $747,608. (2023: $515,208. 2022: $298,658)
- Average monthly expenses IN 2024: $664,525. (2023: $364,292. 2022: $211,108)
Average earnings were the highest in 2024 during the month July (136,800 dollars), a figure that was more than $100,000 less than earnings in September 2023 ($237,700), which was the best month for small businesses over the past three years.
Earnings exceeded $100,000 during the summer months of 2024: June ($128,900), July ($136,800), August ($130,000), and September ($105,400). The downtrend started in July and continued to slide in October ($68,200), November ($49,200) and December ($42,100) of 2023.
Average income were the highest in the month July 2024 ($824,700), and the lowest in January ($588,500).
Average expenses rose steadily throughout 2024 from $512,000 in January, the lowest month until October ($709,000), the highest month. Spending decreased in November and increased again, ending the year at $705,400 in December.
Monthly Inflation *Income *Expenses *Profits
3.1 January $588,500 $512,000 $76,500
February 3.2 $651,500 $586,700 $64,800
March 3.5 $692,900 $651,200 $41,700
April 3.4 $748,900 $687,500 $61,400
May 3.3 $781,500 $689,500 $92,000
June 3 $808,900 $680,000 $128,900
July 2.9 $824,700 $687,900 $136,800
2.5 August $813,600 $683,600 $130,000
2.4 September $795,800 $690,400 $105,400
2.6 October $777,200 $709,000 $68,200
November 2.7 $740,300 $691,100 $49,200
December 2.9 $747,500 $705,400 $42,100
2024 average $747,608 $664,525 $83,083
*Revenues, expenses and profits represent a three-month average each month.
Although the inflation rate has been trending lower since 2022, the overall cost level for small businesses has increased and they are unable to raise their prices high enough to make up the difference. The cost of rent, insurance and equipment have increased, as has the cost of labor. Further, businesses that borrowed often did so at variable rates, so they paid a high cost of capital in 2024. Fortunately for small business owners, the Federal Reserve began lowering rates. It remains to be seen whether this will continue in 2025.
Even with lower interest payments, small businesses operate under a lot of financial pressure and their profitability has been steadily declining over the past six months.
Wcan mitigate the impact of rising costs
Some strategies small businesses can adopt to mitigate the impact of rising labor costs include:
1. Using AI and technologies to increase productivity. Although AI will initially benefit larger corporations more, the use of accounting, payroll and sales technology will help small businesses become more productive and efficient over the next 2-3 years.
2. Focusing on revenue growth. Revenue growth over the past three years has helped offset some of the cost pressures. However, small businesses will still face challenges in sustaining that growth due to rising input costs that likely won’t decrease anytime soon, such as rent, insurance and ever-increasing labor costs).
3. Exploring options to reduce other expenses. Small businesses may be able to find relief through factors such as lower fuel costs, possible tax cuts and reduced geopolitical tensions affecting supply chains and commodity costs. If the Federal Reserve lowers interest rates, small business owners who have outstanding loan payments may feel relief for their variable rate loans.
4. Adapting business models and operations to become more efficient. The way many small businesses are run today may not be efficient enough, so they will need to restructure and change the way they operate to adapt to the new environment.
The key is for small businesses to look at a combination of strategies to offset the impact of rising labor costs, including using technology, driving revenue growth and finding ways to reduce other expenses.
Donald Trump will take the oath of office in Washington on January 20, 2025. (Photo by Anna … [+]
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